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By Darshini Mahadevia Indian mega-cities are rushing to provide world-class infrastructure to welcome capital investment. But a close look at the budgets of Mumbai, Ahmedabad and Bangalore reveals that the investment in roads, flyovers and telecommunications for the few is at the cost of essential services like water, sanitation and public health for the many
Cities are engines of growth. This commonly-used statement has become a slogan for urban policies in recent times. Added to the slogan is the fact that there is a need to develop a brand image for our cities. Terms like ‘brand image’ and ‘USP’ of cities have become common. It is believed that cities attract investment, but our cities do not have adequate infrastructures to invite investment. Cities have entered into competition with each other for investment, tourism, public funds and events such as the Olympic Games. They also compete in assembling a skilled and educated labour force, efficient modern infrastructure, a responsive system of local governance, flexible land and property markets, high environmental standards and a high quality of life. Such competition calls for improvements in transport infrastructure, clean air, good housing (no slums) and so on. All is fair in love and war and competition. But how exactly are our mega-cities doing in terms of urban development? Mumbai, the largest mega-city of India, is in an abysmal state. More than half her population is forced to live in slums and shanties. If dilapidated chawls (one-room tenements) are included, about 75% of the population is living in dilapidated housing. The public transport system, particularly the local trains, is over-crowded. Despite the construction of some 50 flyovers, the roads remain as clogged as ever, resulting in high levels of atmospheric pollution. People spend long hours commuting. But the city wants to become world-class; Shanghai is its model. For this, the Government of Maharashtra (GOM) appointed a taskforce and accepted its recommendations. An officer for special projects has been appointed to implement projects. The early projects are mainly local beautification projects. Bombay First (modelled on London First), a group set up by corporate houses, came up with a ‘Vision 2010’ document, which has been incorporated almost completely by the GOM taskforce in its ‘Vision 2013’ document. Bombay First is modelled on the Bangalore Agenda Task Force (BATF), wherein ‘respected citizens’ are members. Vision 2013 states that in addition to the current level of investment in the city, an additional Rs 20,000 crore per annum are required to construct infrastructure for a world-class city. Rs 1,500 crore per annum will be brought in by the government and the rest is expected to come from the private sector. The State investment is likely to be made by the Mumbai Municipal Corporation (BMC), with support from the GOM. Let’s see how feasible this is. The total size of the 2004-05 proposed budget of the BMC is Rs 6,756 crore (of which Rs 1,721 crore is capital investment). This is evidently not sufficient. Of the total proposed budget, 48% is to go towards either wages or debt servicing. Debt servicing is the repayment of borrowed capital along with interest on the borrowing. Of the total revenue expenditure (which excludes investment in capital projects), 64% is to go for wages and debt servicing. There is unlikely to be a surplus on the revenue side to be transferred to the capital account. Then where would the additional Rs 1,500 crore come from? It would probably be borrowed by the BMC. Debt servicing to total revenue income at the moment is just 10%. Another proposal is to shift the slums from Dharavi to the salt-pan lands in the north. With the Bandra-Kurla complex becoming the new business district, the adjacent lands of Dharavi are in demand for the development of world class real estate projects. Besides thousands of residents, Dharavi has many local economic activities that would be displaced. But the panoramic view from the glass towers in the business district would improve. Unlike Delhi, where there has been forced eviction of slums and local economic activities, Mumbai is proceeding with gradual eviction. What does debt financing mean for city budgets? We can draw lessons from other metropolitan cities, say Bangalore and Ahmedabad, both of which opted to raise capital funds from the bond market and borrowings from financial institutions. Let’s take Ahmedabad first. Nothing much in terms of physical development has happened in the city in the last few years besides an underpass below the railway line passing through the city, a flyover, and road-widening with municipal finances. Still, the budget of the Ahmedabad Municipal Corporation (AMC) is under stress. This is partly because of poor financial planning and partly because of debt financing. In 1996, AMC chalked out a long-term capital investment plan, based on revenue projections and financial viability analysis of projects. This capital investment plan projected a requirement of Rs 1,100 crore till 2001 and Rs 2,700 crore till 2011. But after the preliminary forecasts of its revenues and expenditure, it was found that the target set for capital investment was too high and it was scaled down to Rs 597.4 crore for the five-year period 1996-97 to 2000-01. Of this, Rs 489 crore was to be spent on water supply and drainage, particularly in eastern/industrial Ahmedabad, which was annexed to the AMC in 1986. For this Rs 100 crore worth of municipal bonds were floated at 18% interest. A part of the funds was borrowed from financial institutions such as HUDCO, and US Housing Guarantee, at the high interest rates prevailing then. In 2001-02, the AMC had outstanding debts of Rs 420 crore, which was nearly one-third the size of the total budget for 2001-02 of Rs 1,274 crore and more than the same year’s capital expenditure of Rs 409 crore. Such debt was for meeting its obligatory functions of providing water supply and sanitation! The debt-servicing ratio (expenditure on debt servicing to total revenue expenditure) came to 13% in 2001-02. The permissible debt-servicing ratio is 25%. However, if the AMC continues with its capital investment plan of spending Rs 2,700 crore till 2011, that is Rs 270 crore per annum from 2001-02 onwards, the debt servicing ratio would 21% in 2004-05 and would continue to remain around 20% through the decade. This is assuming that the entire Rs 270 crore spent on capital projects is debt. What has Ahmedabad done to reduce expenditure and make funds available for debt servicing? Because of the financial crunch, the AMC has decided to hand over 76 out of 80 parks and gardens in the city to the private sector for renewal and maintenance. There is also a proposal to privatise the city waste management. The AMC introduced an annual water tax and sewerage charges for the first time in 2002-03 to bring in additional revenues. The AMC has stopped the subsidy to the Ahmedabad Municipal Transport Services (AMTS), which itself is in severe deficit. If the AMC is to reach such a high debt service ratio for just Rs 270 crore per annum borrowing for capital projects, what will happen to the finances of the BMC, Mumbai’s municipal corporation, which has to borrow such high amounts stated for Mumbai’s turnaround as a ‘world-class’ city? Mumbai’s budget is 6.5 times that of Ahmedabad. So, Mumbai may be able to borrow say seven times Ahmedabad’s borrowing capacity -- around Rs 2,100-2,500 crore per annum -- which is far less than the required amounts stated by the taskforce report. There are possibilities that I foresee in Mumbai, which the vision document has kept silent about. One is to sell the public lands, mainly municipal lands in the city. Since more than half the slums in the city are on municipal lands, if such huge amounts have to be raised through municipal land sale, there would be massive eviction and displacement. Secondly, the municipal government would try for cost recovery from most of its low-cost basic services such as water supply and sanitation, when the entire city population still does not have water or sanitation. It is also likely that health and education services funded by the city government would be curtailed. Now let’s look at Bangalore’s budget. The IT sector has been putting tremendous pressure on the city and the state government to improve the condition of roads. The total budget of the Bangalore Mahanagar Palika (BMP) is Rs 1,000 crore, though the water supply is by the Bangalore Water Supply and Sewerage Board (BWSSB) and transport by the Bangalore Metropolitan Transport Corporation (BMTC) and not by the BMP. From 1997-98, the BMP has started to borrow from financial institutions such as HUDCO and KUIDFC (Karnataka Urban Infrastructure Development Finance Corporation), an undertaking of the Government of Karnataka. In 1997-98, the BMP also floated capital bonds of Rs 125 crore. These borrowings have been for investments in roads and flyovers. From 1997-98, the investment in roads and flyovers has increased. On roads, total expenditure in five years from 1997-98 has been Rs 373.5 crore on capital and Rs 172.5 crore on revenue accounts, which is 50% and 63% respectively of the total expenditure on capital and revenue accounts. From 1997-98, the construction of flyovers has picked up and a total of Rs 222 crore has been spent on the same since then. This comes to about 30% of the capital expenditure incurred on infrastructure assets. Together, over the whole period, on the capital side, about 80% of the infrastructure expenditure has been for the construction of roads and flyovers. In 2002, the debt service ratio had gone up to 22%, very close to the permissible figure of 25%. Even then, the amount spent on road infrastructure is not adequate for the IT sector! If Bangalore’s IT industry has to be globally competitive -- and on this depends India’s fate! -- the state and city governments will have to get investment funds for the city or spend their own funds, diverting resources from other sectors. For Bangalore will become a globally competitive city at any cost! India’s mega-cities must become globally competitive, yes. But not at any cost. Careful and integrated planning is required to make this transitory process more humane, as Prime Minister Manmohan Singh said. (Darshini Mahadevia is on the faculty of the School of Planning, Centre for Environmental Planning and Technology, Ahmedabad and Visiting Faculty, Centre for Development Alternatives, Ahmedabad;
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) InfoChange News & Features, February 2005 |
